The “significant” drop off in transfer value exercises seen throughout 2023 appears to have continued into the first half of 2024, analysis from Barnett Waddingham has revealed, with only five projects coming to the market in the opening six months.

This data covered all independent financial adviser (IFA) supported transfer value exercises that the firm was aware of coming to market, including both one-off bulk exercises and ongoing business-as-usual (BAU) exercises.

Barnett Waddingham suggested that the decreased number of exercises may be a result of schemes focusing on buyout preparations, as well as reduced cash equivalent transfer value (CETV) values.

Indeed, Barnett Waddingham found that the typical CETV for a 60-year-old member fell by around 3 per cent for inflation-linked increases and around 2 per cent for fixed increases over the past year, according to analysis from Barnett Waddingham.

The research showed that, in the second quarter from 1 April 2024 to 30 June 2024, CETVs decreased by around 4 per cent for both inflation-linked increases and fixed increases, causing the annual decrease.

"The yearly change chart demonstrates that over the past twelve months, CETV amounts have been more stable than in recent years," Barnett Waddingham principal and senior consulting actuary, Mark Tinsley, said.

"However, there were still periods of volatility, largely due to changes in long-term gilt yields."

Despite this, the analysis found that transfer value activity has remained relatively stable, remaining at a low level when compared with historical standards, with "minimal" change in the number of quotations requested over the quarter.

And whilst the number of quote requests represented an increase compared to the number of member requests one year ago, Barnett Waddingham confirmed that member requests are still much lower than prior to the significant falls in CETVs that followed the material rise in gilt yields over 2022.

Looking further ahead though, Barnett Waddingham warned that, with a new government now in place, it’s uncertain whether there will be any proposed changes affecting DB transfers.

However, it suggested that this is unlikely to be a priority given current low transfer volumes and the significant regulatory changes introduced under the previous administration.

Instead, the firm said that, with the government’s first Budget set for 30 October, the industry will be keeping its eyes peeled for any pension tax changes, particularly around the now abolished lifetime allowance.

"Trustees will want to keep an eye on any proposed changes to the transfer advice regulations and review how these changes might affect their obligations to assist members with transfer-related matters," Barnett Waddingham stated.

"Where they do not have an arrangement in place, trustees remain well-placed to provide access to a specialist adviser and should consider if this can be beneficial to their members, given the challenges they will likely face finding an adviser themselves.”

Alongside the latest updates on CETV trends, Barnett Waddingham shared analysis on current issues in pensions financial reporting, revealing that, since 30 June 2023, most schemes have seen the value of their IAS19 liabilities increase, with corporate bond yields falling by around 0.25 per cent per annum compared to last year.

However, it argued that whilst the increase on the liability value will not be welcome to corporate sponsors, the overall impact on the net balance sheet is likely to be positive due to strong asset returns over the period.

Barnett Waddingham also pointed out that changes in funding levels mean many schemes may continue to find themselves with accounting surplus at the next balance sheet date.

According to the group, some schemes may also find that the accounting position is “materially” better than the scheme funding position used to determine the last recovery plan contributions, increasing the chances of additional liabilities being required under IAS19 (even if a deficit remains).

Given this, it said that companies will need make a judgement as to whether it is appropriate to recognise the surplus and whether IFRIC14 creates any additional liabilities due to commitments made under a recovery plan.

“Establishing whether an unconditional right exists can be a subjective judgement and can, in some cases, require legal interpretation of the scheme’s rules if there is doubt over how they would operate,” the group stated.

“Where companies have yet to consider the asset ceiling, they may wish to do so before next year end - advice may be needed to establish the correct treatment.”

Barnett Waddingham noted that there are also broader considerations for trustees, such as changes to Financial Reporting Council’s reporting standards, and the International Financial Reporting Standard.

In addition to this, it suggested that the High Court ruling on the Virgin Media vs NTL Trustees case could have an impact going forward, clarifying that while the implications of the ruling remain “unclear”, it is likely that audit firms will ask further questions around whether additional liabilities may result and further work may be required ahead of the next year end.

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